For Tax Purposes

By tax matters, offshore funds are classified into the two categories, and this determines what treatment investors' returns will receive, and tax planning options.

1) 'Qualifying' Funds: The funds distributing major part (at least 85% for example in UK) of their income to investors. Distributions are paid gross of tax, and investors usually are left to declare the income in their annual tax returns. The benefit here is one of cashflow: until the tax is paid, and depending on the timing and frequency of distributions, the money is better off in the investor's account that being deducted at source.

2) 'Non-Qualifying' Funds: the second category is perhaps better known as a 'roll-up' (accumulation) fund. No income is distributed, the fund's gains being re-invested to augment the value of the investors' holdings. The investor has enjoyed sth of a tax-paying holiday, on disposal of this kind of investment the Inland Revenue debars access to the reliefs that are normally available on capital gains, and classifies the return as an 'Offshore Income Gain'. It will be subjected to income tax at the investor's highest marginal rate. In both these instances holdings in the name of a non-earning spouse will diminish the liability.

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